Optimistic Investors Push Foghorn Therapeutics Inc. (NASDAQ:FHTX) Shares Up 29% But Growth Is Lacking

Foghorn Therapeutics Inc. (NASDAQ:FHTX) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

In spite of the firm bounce in price, there still wouldn't be many who think Foghorn Therapeutics' price-to-sales (or "P/S") ratio of 11.4x is worth a mention when the median P/S in the United States' Biotechs industry is similar at about 10.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Foghorn Therapeutics

How Foghorn Therapeutics Has Been Performing

While the industry has experienced revenue growth lately, Foghorn Therapeutics' revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Foghorn Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Foghorn Therapeutics' Revenue Growth Trending?

Foghorn Therapeutics' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

Looking ahead now, revenue is anticipated to climb by 20% per annum during the coming three years according to the eight analysts following the company. That's shaping up to be materially lower than the 138% per year growth forecast for the broader industry.

With this in mind, we find it intriguing that Foghorn Therapeutics' P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Foghorn Therapeutics' P/S

Its shares have lifted substantially and now Foghorn Therapeutics' P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Given that Foghorn Therapeutics' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Before you settle on your opinion, we've discovered 4 warning signs for Foghorn Therapeutics (2 don't sit too well with us!) that you should be aware of.

If you're unsure about the strength of Foghorn Therapeutics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.